Dealer Lab: Profits increase in August

Publish Date: 
Nov 1, 2010
By Joe Delmont

Editor’s note: The Dealer Lab project is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk, detailing his efforts to return Florida Motorsports to profitability. When he took over management in July 2009, the two-store (Naples, Fla., and Punta Gorda, Fla.) network wasn’t in good shape — it lost money in 2007, 2008 and 2009. Shenk and a partner have purchased the Punta Gorda store and have renamed it Destination Powersports to break away from its poor reputation. Shenk no longer has ties to the Naples location.

The financial information in this report is taken from the dealership’s Composite Report suppled by Shenk and prepared for the dealership’s participation in the PowerHouse Dealer 20-Group. The Composite Report is prepared from the store’s monthly financial report. In preparing these reports, Dealernews reviews the dealership’s unaudited P&L statement and balance sheet, as well as its Composite Report.

August was the best month so far this year for Destination Powersports, our Dealer Lab dealership in Punta Gorda, Fla. Net income was $7,425 on total sales of $291,088. That compares with a loss in August 2009 of $24,448 on slightly higher total revenue of $315,420, a year-over-year improvement of $31,873 in net profit. It’s also a substantial gain from the previous month, when the dealership lost $15,331 on revenue of $239,293.

The reasons for the big profit improvement, month over month and year over year? Dramatically reduced inventory, which helped reduce flooring costs. Flooring costs were slashed by $10,227, dropping from $17,033 in August 2009 to $6,806 this August. Those savings drop directly to the store’s bottom line.

Inventories in August last year were $2,981,251 compared to only $1,262,129 this year. “Would you, theoretically, sell a few less units if you have a smaller inventory?” asks owner Bill Shenk. “Yes, but we’re not at the point yet where we can afford a larger inventory of current products.”

Sales of used vehicles also provided a big boost in August. This year, the dealership sold 10 used motorcycles and four nonpowersports units such as trailers and generators. In August 2009, the dealership sold only one used motorcycle and one used ATV. Basically, there was no used inventory at that time. The previous owners, Shenk says, were wholesaling inventory to generate cash.

This August, used motorcycles were the most profitable units the dealership sold, generating a profit per vehicle sold (PVS) of $1,869. The previous August, PVS was $1,552, much better than in June and July of 2009 when the PVS was $920 and $155, respectively.

To obtain used bikes, Shenk talked up trades, hard, especially to service customers, because he didn’t have any money to advertise for used bikes. “We’re $100,000 short in cash of where we need to be,” he says.

Sales of new units dropped from 27 units last August to 22 units in August 2010. The market was 30 percent stronger last year, Shenk says, and last year he had new, non-current units that were from three to four years old, and they had to be discounted to the prices of used units. “We had no choice [on pricing].” For example, he had a brand-new 2003 Kawasaki KDX200 that had been in the store for seven years. “That was the oldest brand-new unit,” he says, expressing some relief that the unit is finally gone.

The bright side of the unit sales picture is that the dealership generated a gross profit of $44,176 on total unit sales revenue of $222,093. That’s nearly double the gross profit generated in August 2009 ($24,407) on higher sales of $243,017.

Parts and service problems

Parts and Service revenue was off substantially for the month because of continuing staff turnover in service. The combined revenue from parts and service for August was only $36,073, down $11,722, or a whopping 24.5 percent during a time when parts and service are carrying many dealerships. “In two months, we had three different people running the service department,” Shenk says. “I don’t keep them very long — if it isn’t working, it isn’t working.”

There also was a change in the store’s two technicians and three service writers; eight people in three months — that’s virtual chaos. “It’s tough on customers and it’s tough on efficiency. It just cost us business in August,” Shenk says. “The No. 1 enemy of ‘great’ is ‘good,’” he adds, “and we were headed toward ‘good,’ but we weren’t going to get beyond it. I’m just going to keep changing the crew until I get what I want.

“I’m really happy with the service manager now,” he continues. “We’re tracking good with only two techs, and we need three. We need a Top Gun A tech, somebody who has lots of experience. But we’re producing more every day, and the CSI is the best it’s ever been in the year we’ve been tracking it. We’re showing the right stuff.”


Other Numbers

Advertising costs were up compared to last year, largely because of costs related to Internet operations, including development of a new website and sales on eBay and Cycle Trader. “We didn’t spend one dollar on traditional advertising,” Shenk says. He’s switching from Internet service providers, moving from 50 Below to Powersports Network (PSN), which costs time and money.

The dealership picked up an extra $3,923 when it wholesaled some motorcycles, ATVs and boats.

This story originally appeared in the Dealernews November 2010 issue.